QuidelOrtho Corporation (QDEL) Earnings Call Transcript & Summary

Hi, welcome to the 14th Annual Canaccord Genuity MedTech and Diagnostics Forum. I'm Max Masucci, Lead Diagnostics analyst at Canaccord. I'm pleased to be joined by Quidel, which is the largest medical point-of-care diagnostics pure-play and a company that's seen its market cap grow by 2.5x as a result of the company's response to the COVID-19 pandemic. Quidel continues to execute on its COVID testing initiatives, but its business goes well beyond pandemic solutions. So I'm pleased to welcome back CEO, Doug Bryant, CFO, Randy Steward. Thanks again for joining us this year.

Great. So let's lead off here. You hosted your Analyst Day last week. For those that may have become involved with Quidel for your COVID-19 testing opportunity, you demonstrated that your breadth of instruments and assays goes well beyond just what we call pandemic solutions. So I'll start with an open-ended question, what was your team most excited to reveal during the Analyst Day? What do you think the key takeaway should be? And is there any aspect of your 5-year road map do you think is still underappreciated by the investment community?

I think the answer to all those questions is really the same, and that is the 2 things that we wanted to convey during the Analyst Day presentation was, first, the opportunity that we see ahead of us in terms of at-home infectious disease testing is a reality. We just saw the FDA clear the first at-home SARS test, we were extremely encouraged by all of that. I just got another text from the FDA yesterday, saying, where's your data on at-home. And so I'll talk about that in a second, but -- for QuickVue SARS. But this will, I think, transform the company moving forward. We've been talking about the democratization of testing for a while, but this greatly accelerates it. We thought we were shooting a little bit ahead of the duck before when we were talking about doing flu testing and strep testing at home. But I think we now see a clear path to all that. And so we're extremely encouraged. The second thing that we wanted to communicate during the Analyst Day was that our company in terms of market presence, in terms of brand awareness, I think was good for the size of the company that we were. But as we launch things like Savanna and high-sense troponin into the marketplace, it sure would have been handy had we had more of a household name, if you will, in the diagnostics industry. And as a consequence of having developed and launched numerous assays into the COVID space this year, we can't find somebody that's not going to take our call. We can't find anybody that doesn't know who we are. I don't know how people get my cell phone number, but I'm called by all sorts of folks that I've never known before, governors, presidents of universities, et cetera. We're routinely contacted by people in the retail space that, of course, they would not have known who we were at all until rather recently. So those 2 factors: One is the clear path to at home, which I think will change the scope of our company over the next 3 to 5 years, plus just the market awareness, which will create a receptivity to our products as we launch them moving forward is just so valuable. In our original LRP, we had risk-adjusted our launch to compensate for our lack of brand strength in the molecular space, as an example. The whole notion that if you build a great product, people are just going to naturally buy it, that notion is false. You have to have presence. You have to have people who know what your company philosophy is, what you stand for. And I think the data that I'm seeing suggests that our customers, they respect the fact that we're available, we're easily accessible and our follow-up with our customer base is impeccable. I think our commercial team is -- in the last several months, creating an image of our company, which is great. And I would say, relative to all the other big names in our space, I would say we're on the same playing field now as Roche, Abbott and others. And I think that portends well for us over the next 3 to 5 years.

Yes. A major marketing event. But Doug, I think you're destined to be famous. So it's good to see.

Or infamous.

So back in May, you're the first company that earned an emergency use authorization for an antigen-based test. Before we maybe move on to some of the other exciting areas of your pipeline, can we just talk about -- spend a second on antigen? Can you just talk about the benefit of having the first-mover advantage there? And now 6 months into the launch of that test, what you've learned about sort of the competitive positioning of your test versus others that have earned EUA? Just understanding that really, the demand continues to be sort of unfathomable. But as we look forward, how we should see your test really fitting into that particular channel?

Well, we like to say there's value in firstness. And so I recognize that's not a word, but we use it. And we were the first with the influenza test, a rapid influenza test. And we've done extremely well over the years. We've maintained that market share lead. Right now, the data before COVID had already shown that we were cumulatively the market share leader in flu still while maintaining our pricing in the marketplace. Moving forward, we've captured unbelievable contracts on influenza, taking a lot of business away from folks that I won't name on the call right now but the usual suspects. So there is value in being first out there. We've taken significant advantage of that with the SARS antigen in 2 ways: one, we're ramping up manufacturing, and that takes a while. I don't care how big you are or how scalable you think your organization and your supply chain is, it takes time. And so we've now shipped over 30 million cartridges as of a couple of days ago. We have scaled up to 2.1 million cartridges that we're patching every week. We're always chasing that number with all the components that go with the kit. But effectively, we're shipping and selling everything that we make at this stage. We do believe that we've secured our supply chain such that as we roll into January, we'll be ramping that up by another 900,000 tests per week. We're already at a stage where we're manufacturing QuickVue SARS in advance of that launch. But we hope to be the first at home with QuickVue SARS in a meaningful way. I do recognize that there is another small company that got approval a day or so ago to be at home, but we hope to be the first of any significance in that space. And right now, if we didn't do anything, we would manufacture about 70 million QuickVue SARS in 2021. Obviously, as you heard us say a few days ago, we have plans to get to 50 million tests per month and beyond. Our Head of Global Operations aspirationally is thinking he can get to double that, but we'll have to see. Step 1 is to get to 50 million tests per month. So I think it's been a huge advantage for us. We're now doing extremely well when our competitors in the space are faltering. So our supply chain is secure, our manufacturing is secure, our customer relationships are secure. And we're just now opening up the opportunities into what we call the new market segment because we've now ramped up instrument production as well. So as we go into first quarter, I think we'll be able to clear most of the back order that exists in the current market segment. In other words, the traditional professional segment. And then we'll be able to move boxes into places, businesses, occupational health companies. We'll go beyond what we're doing with the Pac-12, Big Ten, the other conferences. By the way, we're used in all the Power 5 users, Sofia is part of the regimen. And now we're going to be doing the NCAA as well. Those are small volumes relative to the total, to be honest with you. The real opportunity is in airports, cruise lines, things related to travel and entertainment, just generally. I think that, that is going to take care of a huge number in the next several months. And then after that, I think as we evolve with our relationships with these major retailers, I think you're going to see our products at home, whether through prescription or not, we have to figure that out. But we're building the model as if we have to use telehealth in order to get a prescription. Person goes to a pharmacy, picks up her product, runs it at home without an instrument using QuickVue and then Sniffles, of course, longer term, same sort of thing.

Yes. I've had 3 Sofia rapid tests. I've waited anywhere between 30 minutes and 3 hours to get them. So I do believe that a home-based alternative would be very much appreciated. If we move -- if we stick with a QuickVue, it doesn't require an instrument to generate the test result. What sort of barriers would a home-based test need to overcome to earn that emergency use authorization? And then just generally speaking, I think that before your antigen test was launched, it wasn't fully understood how impactful that was going to be. But if we move, i.e., if we shift our focus towards the at-home test, what is the magnitude of the impact that, that type of test could play?

Well, let's talk about the steps to get there and then what that impact could be. But step 1, which will be completed here before the end of the month is to reconfigure the product into a consumer-friendly format. First of all, obviously, moms are not going to want to buy 25 tests at a time as you would in the professional segment. So we'll have a 2-tests packaging, we'll have different instructions for use that are more, I would say, lay friendly, more consumer friendly. And once we're actually manufacturing product in that configuration, which is really about the packaging, not the product itself, we will then be able to do the end user studies that are necessary with the lay public running those assays. And that will happen in the month of December. The sooner that we can get that done, the sooner that we can get those data submitted to the FDA. And I'm actually going on the assumption that we'll get a reasonably quick review time. This is a format that, of course, has been out there for 15 years. It's deemed to be the easiest thing in our space to run. And so I don't really envision any difficulty in the review with the FDA. The data, obviously, will already have been reviewed as they are now. We are in the final stages of the EUA submission for QuickVue SARS for the professional segment. And I would expect to be in market in the month of December there with that particular product, and then shortly thereafter, at at-home claim and different packaging, look and feel as well. In addition, we're developing an app that can be used to report the result -- to read and report the results that will follow quickly thereafter. That's been in development for a couple of years now. And actually, obviously, we didn't foresee use with COVID, but we were intending to allow the interpretation of a QuickVue test result for influenza using a cell phone and an app. We actually ran clinicals a couple of years ago on the app itself in Australia. And then based on that, set of studies that we did there, we've made numerous improvements to the app. So we -- as a company, we have all the equipment, the folks, the supply chain to do all this. But on top of that, we were developing things that we thought would be helpful moving forward for at-home use. And then this happened. So the impact for us, I think, will be significant. I think we're going to be able to sell everything we make.

Yes, makes sense. And I guess I'll attempt to dig one layer deeper here, is the direct-to-consumer approach would be new to your company -- new to Quidel. I know you're currently sort of evaluating the different approaches towards entering sort of that direct-to-consumer market. But in your opinion, what are a few of the ideal ways you could target that direct-to-consumer market? Is it through a partnership, through M&A, which approach provides you with sort of the quickest opportunity to capitalize on the DTC market without sacrificing quality?

Quickest path is to partner with retailers who have been talking to us about 2 different ways to go to market. One would be the idea that they have that by putting the product in their pharmacy and pulling people into their pharmacy, either through a drive through sort of concept or not, they see value in securing that patient. The other idea, of course, is to figure out how to partner with telehealth and other digital health ideas to potentially go to your pharmacy, pick up the product, go home and test the data, then go to your physician, who then has a reporting requirement. And then our app, we hope would be useful to the physician in terms of getting the data to wherever they need to go. As you know, Max, we already send data nightly through Sofia 2 and the cloud-based system that we call Virena. We push those data nightly into the CDC. We also push it to the states that want the data. And believe it or not, some states don't want the data. I know that's surprising, but we push the data to whoever wants it, and we do so at no charge, by the way. So we already have the mechanism or at least part of the mechanism for pushing de-identified data. The question then is, can we use the understanding, the knowledge and the resource that we already have in place to help the physician interpret the data and then send the data to whatever public health agency requires it.

Yes. No, that's helpful. And this -- what just popped into my mind is, I mean, we've been talking about testing for active infection. But we haven't -- the conversation about antibody tests and serology testing has really sort of faded over the past, I would say, over the past a couple of weeks or so. But these tests can clearly play a role. I think the understanding of their utility is growing, but it's less defined what the magnitude of that sort of volume or unit opportunity is. But I just figured out to lob that into you. What's your latest view on or expectations for antibody serology testing?